Pre-funded and guaranteed bonds on the rise in 2013: Ex-Im

Increased appetite from the capital markets for commercial aircraft has opened up additional sources of funding, according to the US Export-Import Bank's (Ex-Im) vice president of transportation.

"The bank has had considerable success with capital-markets funding and we expect more issuances of guaranteed bonds, including pre-funded bonds," says Ex-Im's Bob Morin.

Under a pre-funded bond structure, according to Morin, airlines can raise money for their aircraft purchases directly from the bond market without the need for a commercial bank to initially fund the Ex-Im Bank guaranteed loan on the delivery date.

"The bond issuance is no longer tied to the aircraft delivery dates. The airline can raise money in advance and place the money in escrow until the bond proceeds are used to pay Boeing."

Morin notes there have been eight pre-funded deals since this type structure was approved in May 2012.

LATAM Airlines issued the first pre-funded bonds in July, selling $299.2 million of bonds in an offering managed by JP Morgan Chase. That deal refinanced two 767s and pre-funded the acquisition of two additional aircraft.

By the close of fiscal year 2012, there had been approximately 45 "successful" bond issuances, aggregating nearly $7.5 billion in guaranteed financings funded by the capital markets, says Morin. That number has now grown to more than 60 issuances aggregating almost $11 billion in Ex-Im-guaranteed bonds through the beginning of February 2013.

Activity picked up "substantially" beginning in the second half of fiscal year 2012, with 40 issuances during the ten-month period from April 2012 through the beginning of February 2013.

During the past two years, Ex-Im has approved more than $20 billion in financing to support the export of US-manufactured commercial aircraft.